- Oil prices fell sharply, with Brent below $88 and WTI near $82 a barrel
- Brent crude dropped 8.7% Monday, its largest single-day fall in over three months
- US and Iran engaged in talks, easing fears of Middle East supply disruptions
Oil prices extended their sharp decline on Tuesday, with Brent crude falling below $88 a barrel and West Texas Intermediate (WTI) trading near $82, as hopes of renewed diplomacy between the US and Iran eased concerns over disruptions to global crude supplies.
The latest decline follows Monday's 8.7% slump in Brent, its biggest single-day fall in more than three months, as markets increasingly priced out the geopolitical risk premium that had driven oil higher earlier this month.
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Sentiment improved after US President Donald Trump said Washington and Tehran were engaged in talks aimed at ending the Middle East conflict. According to Axios, Trump decided to pause further strikes on Iran to give negotiations another opportunity, although it remains unclear whether substantive discussions are underway.
Crude prices have swung sharply over recent weeks, initially rallying as tensions escalated between the US and Iran and the conflict spread into the Red Sea, before retreating as prospects for diplomacy improved. Even so, traders remain cautious, with shipping through the Strait of Hormuz yet to fully normalise.
Attention has also shifted to negotiations involving Iran and Oman, which are working on an agreement to restart commercial shipping through the strategically vital waterway. The Strait of Hormuz, which connects the Persian Gulf to global markets, typically carries about one-fifth of the world's daily oil supply, making its reopening a key factor for energy markets.
Further easing supply concerns, Kazakhstan's main crude export terminal resumed loading operations after Ukrainian drone attacks had temporarily disrupted shipments. The restart at the Caspian Pipeline Consortium terminal has added to expectations of improving global supply.
Meanwhile, analysts at Macquarie Group warned that the oil market could swing into oversupply before the end of the year if diplomatic efforts succeed, as per Bloomberg reports. The brokerage estimates that a resolution to the Iran conflict could leave the market with a surplus of around 2 million barrels per day in the fourth quarter, reversing the supply fears that have dominated trading in recent weeks.
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